• USD/JPY declines over 2.0% after US CPI data misses estimates. 
• The data means US inflation is a step closer to the Fed’s 2.0% target. 
• This increases the likelihood of the Fed cutting interest rates in the near term weakening the US Dollar in the process.  

USD/JPY is in freefall, trading over 2.0% lower, in the 157.90s, after the release of US Consumer Price Index (CPI) for June showed a cooling down of inflationary pressures in the US economy. 

The CPI data brings US inflation a step closer to the Federal Reserve’s (Fed) 2.0% target and makes it more likely the central bank will reduce interest rates in the near-term. This in turn is negative for the US Dollar (USD) (and the USD/JPY) since lower interest rates attract less foreign capital inflows. 

The Japanese Yen (JPY) meanwhile, finds support after Japanese factory-gate inflation data showed a sharp rise in June. PPI rose 2.9% year-over-year in June, beating the previous month’s 2.6% reading and in line with consensus expectations. It was the fifth consecutive month of increasing gains for the indicator, the 41st consecutive month of PPI inflation, and the highest reading since August 2023